The madness of crowds can bring an economy to its knees with frightening ease and every decade or so for centuries, the twin forces of greed and folly have come together somewhere on the planet to crush the hopes and dreams of a generation.
Four hundred years ago, frenzied Dutch merchants fooled each other into thinking single tulip bulbs were worth more than tall ships. At the tail-end of the last century, before dotcom became dotbomb, Silicon Valley’s swaggering buccaneers convinced themselves that every tech start-up, no matter how dumb, was worth a million-dollar punt.
In 2008, it was Ireland’s turn to pay dearly for our delusion.
For more than a decade we believed the lies peddled by greedy bankers, developers, estate agents and politicians who all assured us over and over again that investing in property was as safe as houses. Mortgages in excess of 100 per cent were routinely doled out by bankers too lazy to carry out even the most cursory background checks while people terrified of missing the houseboat paid stupid sums for shoeboxes thrown up by cowboy builders more interested in tax breaks than bricks and mortar.
As the madness reached its zenith in 2007, two-up two-downs in Stoneybatter and Pimlico were changing hands for just shy of half a million euro while Victorian redbricks in leafy Dublin suburbs were declared to be worth more than Parisian palaces.
Then the madness came to a shuddering halt and tens of thousands of homeowners saw their paper fortunes torched almost overnight.
Five years on and the financial hangover has yet to lift. Ghost estates have left our landscape permanently pock-marked while hundreds of thousands of homes – up to 350,000 on one estimate – remain mired in negative equity and tens of thousands of homeowners can’t service loans that were given irresponsibly.
Bounce back
But has a corner been turned? And is the property market starting to bounce back? It certainly seems that way. Last month property prices increased faster than at any time since the collapse and according to the Central Statistics Office (CSO), the value of homes went up by 1.2 per cent last month. A similar trend was recorded year on year, the first time since 2008 that prices went anywhere but south over a 12-month period.
There was more good news in a report published this week by estate agency Douglas Newman Good (DNG). The company points towards even larger increases in some areas. It put the recovery in the second-hand house market in Dublin at 7.7 per cent since the start of the year and at 15.1 per cent in the 12 months to the end of June. Converting those percentages to cash paints a clearer picture and, based on the DNG figures, the average price of a second-hand house in Dublin has gone up by €37,500 to €279,000 since last summer.
Of course estate agents have never been shy of talking up the market, often misrepresenting it to a scandalous degree, but the State-run Property Price Register, which went live last year is more detached and it also points towards recovery, at least in urban areas. It shows that the average price paid for a house in the first quarter was €191,320. Dublin houses were priced at €297,574 while the average outside the capital was €140,243.
"[This year] appears to be a turning point in the housing market," says Keith Lowe, the chief executive of DNG. "What has emerged is clearly a two-tier market with property located in the greater Dublin area far outperforming all other locations. Property prices in the capital are rising by more than 1 per cent a month as demand is clearly out stripping supply."
One reader, who asked to remain anonymous, has been the beneficiary of the pick-up. He and his wife put their three-bedroom home, in a north Dublin coastal suburb, on the market in February with an asking price of close to €500,000. On the day of the first viewing 120 people walked through the front door and after just three weeks the house went sale agreed for about 10 per cent over the asking price.
There have been many such stories in recent weeks. A house on Durham Road in Sandymount went on the market with an asking price of €895,000 and sold for more than €1 million and a 1,200 sq ft four-bedroom house on nearby Lea Road went to auction with an advised minimum value (AMV) of €550,000 sold for €710,000. A four-bed semi in Grange Grove in Deansgrange that was quoting €415,000 sold for just over €450,000. A three-bed in Dún Laoghaire went sale agreed in February for €370,000 but the sale fell through. Last month it sold for €410,000.
“The market here is shaping up a bit like the English market,” says Lowe. “London is doing much better than elsewhere and . . . Dublin is definitely outperforming the rest of the country. We have seen nine months of price increases so I think we are turning a corner, although I do say that guardedly and there are still huge challenges to face.”
Trevor Grant is the managing director of the mortgage company Select Finance and is the chairman of the Association of Expert Mortgage Advisors. He echoes Lowe's sentiments about a property bounce.
“We saw a big increase in mortgage applications in April and even bigger again in May with all the growth coming in Dublin,” he says. “Well-located, well-established areas – and that is much broader than just the south Dublin enclaves and Clontarf and Malahide; anywhere that is settled and close to amenities – is doing well now. I would say prices have gone up by around 5 per cent in the past six months alone.”
Ultimately it comes down to supply and demand. And all the demand – and, as a result, the price pressure – is is on a very specific type property, Grant says.
“Even first-time buyers with no children want to buy family homes. They want a place that they will live in for the rest of their lives. The idea that they will buy starter homes and flip them in five years has gone, and I can’t see it coming back. What people want are three- or four-bedroom houses in settled areas close to amenities.”
Not so optimistic
Edward Carey, an auctioneer based in Enfield, Co Meath, is not so optimistic about recovery.
“I don’t want to be preaching doom and gloom, but property is part of a macro economy and it needs a functioning economy to work. I don’t think we have that yet. Until we have a proper functioning economy again, the market will struggle to recover. I can tell you there are very few sales taking place in Enfield.”
He questions the official figures on house prices and says an accurate picture of the property market has yet to emerge.
“For a start, the CSO is saying the average fall from the height of the boom is 50 per cent but I would put it at more than 65 per cent. I was selling houses in Enfield in 2006 for €365,000 and they are down to €135,000 now,” he says.
While prices might have gone up, the level of activity in the market is still low, even in Dublin, and the number of new mortgages being issued is just one-tenth of what it was at the peak. It is far below the levels expected in a properly functioning market where about 3 per cent of properties change hands each year. In Ireland last year, the rate was 1 per cent.
An absence of credit, confidence and equity are to blame but, with prices rising and the economy stabilising, confidence is returning and banks seem more willing to loosen their purse strings now than at any point in the past six years. In June 2012 only two lenders, AIB and Bank of Ireland, were active in the market – and they were hardly rushing to lend money. Permanent TSB, KBC and Ulster Bank are back in the game, with money to lend but stricter lending criteria.
On Thursday Bank of Ireland unveiled a new €2 billion mortgage fund for first-time house buyers. It comes on the back of a similar fund it announced last October. Of that first tranche of mortgage money, the bank says €1.2 billion worth of loans have now been approved.
Gavin Kelly, the head of consumer banking at Bank of Ireland, says it is seeing "strong evidence" that property prices and people's incomes are stabilising .
“These factors are contributing to improved consumer sentiment and an increase in the number of people considering the purchase of a home,” he says. “We expect strong demand to continue, particularly in urban areas, as affordability has improved.”
In fact, the bank is so confident that the demand is there that it is opening three of its largest branches at 8am "so that busy customers can make early mortgage appointments" and is appointing "mobile mortgage managers", who will meet Dublin customers at a time and place that suits them. "We hope to engage with as many people as possible over the coming months," says Kelly.
Not impartial
But the banks, the estate agents and the brokers are not exactly impartial bystanders so it is hardly surprising to hear them talking up the market. Buyers, on the other hand, have nothing to gain by talking of recovery, yet their stories chime with what industry figures are saying.
John Lush from Greystones, Co Wicklow, wants to buy but has had no joy since he started looking in the spring. He and his wife bought a house in Newtownmountkennedy, Co Wicklow, in 2005 and almost immediately moved to New Zealand where they lived for more than six years. When the Lush family came home in 2011 they had doubled in number; their 800 sq ft bungalow seemed very small for the couple and their two young boys, and they immediately started planning to move.
They sold their house this year for a lot less than they had paid for it, but savings from their New Zealand adventure and some parental help have put them in a position to buy. They have loan approval of up to €350,000. “We started out looking for a very specific type of house,” Lush says. “We wanted a four-bedroom house within walking distance of Greystones. So did a lot of other people, as it turns out.”
He says that dozens of would-be buyers have been at almost all the public viewings they have gone to since the hunt started. “We have bid on four or five houses so far and we were using last summer’s prices as a guide. But that means we have gone in too low and people are bidding 20 grand more than us from the off.”
He says the four-bed properties in the area that cost €340,000 last year are now fetching €400,000, an increase of at least 20 per cent.
“It is all very frustrating but we not going to lose the run of ourselves. We are renting a place in Delgany, and paying less than we would if we had a mortgage, so that has taken some of the pressure off. I don’t know where the market is going to be but we are certainly more careful than we might have been before.”
He says he and his wife are wary of bidding wars and if one starts, they just back off. He believes many buyers are similarly cautious. “I think the crash has taught us all some real lessons and my generation will be reluctant to get stung again. But who knows, in 10 or 20 years time it could all start all over again.”
Edward Carey, the Enfield auctioneer, agrees. “I think the bubble could certainly blow up again. I am not sure we have learned any lessons. Do we ever?”
